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Uncertainty Matters

Richard Fisher, president of the Federal Reserve Bank of Dallas, has been making it loud and clear that uncertainty from Washington is a leading driver of our stalled economy. In an interview with the AP, he talked about what Congress should be doing to boost growth and get people back to work:

Provide us with clarity. Right now, nobody knows what the tax regime is going to be. Nobody knows what the spending patterns are going to be. No one knows how much regulatory change is going to take place. The greater the clarity, the more you remove a factor of uncertainty. Even if (businesses) don't like it, they'll figure out a way to navigate their way through it. Right now, there are no decisions being made. And it undermines confidence.

This is right in line with results from the Chamber's latest Small Business Survey which found that 39% of small business owners surveyed feel "uncertainty about what Washington will do next" is the most- or second-most important obstacle in hiring more workers. The survey also found "86% say they would rather have more certainty from Washington than more assistance (7%) to deal with the economy."

To try to measure uncertainty and its economic effects, Professor Steven Davis at the University of Chicago business school [via James Pethokoukis] created a "policy uncertainty index." It's a work-in-progress, but his research reinforces "concerns that policy related uncertainty played a role in the slow growth and fitful recovery of recent years."